JAMS ADR Blog by Chris Poole
Something interesting has happened to me in the past year or so: I started seeing many more cases where two or more parties were Asian, a term I will use to mean both “Asian-American” and “from Asia.” Some have been mediations, others were domestic arbitrations and one was an international arbitration. In the last several months alone, I have had two cases where all of the parties and the lawyers—save one—were Asian. To an Asian neutral like myself, this is a welcome development. And since May was Asian American and Pacific Islander (AAPI) Heritage Month, I would like to take a moment to celebrate it.
In several of these matters, it struck me that when interpreting the scope of their rights and obligations, the parties attached less weight to the written instrument (e.g., a sales contract or partnership agreement) and more weight to oral understandings or a (shared?) sense of honor or good faith. In one case, for instance, the parties had entered into a contract for the purchase of an aviation company that included itemized conditions precedent to closing. One party asserted that the conditions were not satisfied to the letter and thus that it had no duty to complete the sale. The other claimed that it had been assured the written conditions were just a formality—something required by the other side’s U.S.-based lawyers—and that in any event both parties understood the conditions would not be strictly enforced.
In mediation, a discrepancy between the plain language of the written instrument and what one party claims was the “real” agreement can become a springboard for surfacing divergent assumptions or key miscommunications, which in turn can sometimes help deepen understanding between the parties. Even if not, the mediator can use the discrepancy when performing a risk analysis or reality testing. But in an arbitration, which will be the focus of this blog post going forward, such a discrepancy often puts the neutral in a very difficult position.
Why is it so difficult? Clearly, you might say, the writing controls; under widely-accepted principles of contract law, everything else is either parol evidence or evidence of mere subjective interpretations that have no bearing on the contract’s reasonable, objective meaning. Indeed, I attended a webinar recently where the consensus among both civil law– and common law–trained lawyers was that courts should confine themselves as much as possible to the “four corners” of the written instrument. Looking at extrinsic evidence to try to ascertain what the parties “really” intended, they opined, was a slippery slope to interpretative chaos.
But here is where it gets complicated. Commercial actors—especially if they already have a preexisting relationship—often do not reduce important aspects of the deal to writing. Industry-specific norms also affect the importance that parties attach to putting things in writing. And based on my recent cases and my own personal and professional familiarity with certain Asian customs, I submit that this is sometimes also a function of one’s cultural, ethnic, or national affiliation. In these kinds of cases, a formalistic legal approach to contract interpretation could very well result in injustice if it allows one party to use the language of the contract opportunistically, such as when it happens to align with their interests after the fact.
What is a neutral decision-maker to do in these cases? My answer begins from the premise that the purpose of contract interpretation is first and foremost to give effect to the intention of the parties. In many instances, the contract’s plain language will be the best expression of that intention; indeed, in jurisdictions such as New York, a judge must deduce that intention solely by reference to the plain language and may look at extrinsic evidence only if that language is ambiguous. But as my recent experience in cases with Asian disputants suggests, in some instances it won’t. Going back to my prior example, even if a contract contains what appear to be unambiguous pre-closing conditions, sometimes it is only by considering extrinsic evidence that a decision-maker will gain a fuller appreciation of what the parties truly intended by including them. By ignoring the totality of the circumstances and by focusing instead on written words in the abstract, judges and arbitrators risk becoming inured to important cultural and other context-specific features of a dispute.
To be clear, I am not suggesting that cases involving Asian parties should be approached differently from other types of cases. Asians as a group are incredibly diverse, and there is no optimal or one-size-fits-all approach when dealing with them. I am also not saying that arbitrators disregard the plain language of a contract willy-nilly, as sometimes that language is both unavoidable and unambiguous.
What I am suggesting is that, even where the language may seem clear and beyond interpretation, arbitrators should still give careful consideration to extrinsic evidence about the surrounding circumstances. This not only helps produce results that are more nuanced and fair, it also remains faithful to the cardinal rule of contract interpretation, which is to give effect to the parties’ actual intent.
Globalization is bringing together parties with sometimes surprisingly different expectations about how to conduct business, what is fair or unfair, and the importance of a written legal document relative to a handshake agreement. Now more than ever, arbitration presents itself as an alternative forum that can both honor the rule of law and remain authentic to those differences.
The author would like to thank JAMS colleagues Robert Davidson, Chris Kwok, and Serena Lee for their extremely helpful feedback.